Market Beat: Pound Jumps before the Bank of England’s Meeting

The Great British Pound caused a strong rally in risk assets on Tuesday as the currency recovered back above some crucial technical levels against its major counterparts. Rumors emerging about further stimulus in Japan following the elections on Sunday, as Shinzo Abe hinted on a new program to boost the Japanese economy. The Yen declined against the majors for the second day in a row, and that also lifted stock markets and risk-on currencies worldwide.

Oil bounced back from a negative spell yesterday after declining in early trading. The crucial commodity followed risk assets higher and helped related currencies throughout the day. The New Zealand Dollar, the Australian Dollar, and the Canadian Dollar all ended the session with gains compared to most of the majors. Precious metals continued to drop after the late-session decline on Monday, but that didn’t reverse the gains of commodity currencies.

GBP/JPY (current price: 138.92)

The pair bounced back by more than 800 pips in 3 days as the Yen got weaker and the Pound rebounded against its peers. The number one safe haven currency has been suffering this week so far as investors got more optimistic regarding the government’s stimulus program following the elections. The pair re-tested the lower boundary of the prior trend channel after rising above the key support/resistance level at 133.50. Traders now focus on the 139.2 resistance and the

Our assessment: The pair hit a low just above 128 last week, with the declining 200-day MA still at 166 pointing to a deeply oversold state, but the declining trend is still intact , despite the strong correction of the past two days.

EUR/USD (current price: 1.1065)

The Euro continues to trade in a narrow range compared to its most important counterpart as the 200-day MA serves as a “magnet” for the price, and with strong support holding the pair around 1.10. The U.S. economy continues to outperform the Eurozone, but the risk-on sentiment helped the Euro yesterday as it drifted higher, back to the 1.11 resistance. The pair faded in late trading and the short-term declining trend is still intact, with the upper boundary of the channel looming at 1.1175.

Our assessment: EUR/USD held up well during the Brexit panic and that might mean a possible re-test of the upper resistance of the current trend channel, if the rate can stay above the 200-day MA.

AUD/USD (current price: 0.7602)

The Australian Dollar had another great session backed by the rally in oil and the decline of the Yen. The Australian Nab Business Confidence Index came in at 6 compared to the previous reading of 3 helping the Aussie in early trading.  The pair got close to the crucial 0.7650 that marked the top in June. Another strong resistance zone is found near 0.7850 serving as a possible target for a bullish move. Support stands at 0.7500 before today’s employment report, with the 200-day MA being just above the 0.73 level.

Our assessment: AUD/USD has been acting positively in recent weeks despite the Brexit-scare, as the long-term picture remains neutral for the pair.

Gold (current price: $1338.30) and Silver (current price: $20.30)
Gold dipped below the crucial 1350 level yesterday as global sentiment got better yet again thanks to the pound’s strength and the decline of the Yen. Silver held up better on Tuesday again and it’s still trading above the key 20 level after hitting a high near 21 last week. Volatile trading is likely to continue as the accommodative policies continue to support precious metals, while the improving investor sentiment drives traders away from them.

Our assessment: Gold is back to the vicinity of the 1350 support/resistance level, as it continues to trade in a long-term uptrend, with strong support at 1330 and near 1300.

Economic Releases

The Bank of Canada and the Canadian Dollar will be in the center of attention today as the central bank will hold its monetary policy meeting during the day. The bank is expected to leave its benchmark rate unchanged at 0.5%, but a more dovish than expected statement might send the Loonie tumbling. Before the most awaited release, the Bank of England’s Credit Conditions Survey will be published together with the Eurozone Industrial Production number, and U.S. Import prices. The evening session will be highlighted by the Australian Employment Report, and the FED’s Beige Book.